CSR stands for Corporate Social Responsibility.
The European Commission defines CSR as “a concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders". CSR may be guided by voluntary or mandatory regulations, depending upon an organisation's country of operation.
CSR is centered on the idea that businesses have a responsibility to benefit the society that they exist within—a broader view than the traditional one that focused on economic value and profile of profits.
How does CSR work?
Corporate social responsibility strategies and activities will vary according to the company in question.
CSR activities are generally undertaken by companies to assess and mitigate impact on society and the environment, as well as to give back to society and reap the benefits associated with creating positive social value (such as improved risk management and higher employee engagement).
CSR practices are often guided by the accounting framework called the “Triple Bottom Line,” which focuses beyond the conventional business success metrics to include an organisation's contributions to social well-being, environmental health, and a just economy.
These bottom line categories are often referred to as the three “P's”: people, planet, and prosperity.
CSR Key Concepts and Terms
CSR categories and subcategories may differ depending on the regulating body and the organisation. Moreover, the classification has changed over the course of time. However, the three most generally accepted categories are: environmental, social, and economic.
- Environmental: corporations, especially the larger corporations and companies in specific industries, can significantly damage the environment via greenhouse gas emissions, pollution, and resource depletion. Accepting environmental responsibility entails a commitment to monitor activities that are potentially detrimental to the environment, while preventing negative environmental impacts. This concept is also known as environmental stewardship.
- Social: responsibility for businesses emphasise fair business practices—ensuring that all people involved in the corporation’s activity (ie. employees, suppliers, consumers and other stakeholders) are treated fairly and with respect (non-discrimination, workplace safety, products safety, local procurement, etc.).
- Economic: economic responsibility means making financial decisions that considers a greater good and that takes into account the impacts of activities, rather than keeping a narrow focus on making as much money or saving as much money as possible.
Note that while these categories are distinct, they are not mutually exclusive. There are often areas of overlap among the three categories.
Examples of CSR considerations
Also, different frameworks on social responsibility may categorise differently.
For instance, the ISO 26000 identifies seven core subjects (see below), as well as seven key principles focusing on accountability, transparency, ethics, stakeholder interests, human rights, laws and norms.
- Organisational governance
- Human rights
- Labor practices
- Environmental responsibility
- Fair operating practices
- Consumer protection
- Community involvement and development
Principles of CSR
Organisations sometimes create guiding principles, which are different from CSR responsibilities, for CSR activity.
Note that as with the CSR categorisation of responsibilities, there is some variance in which principles are selected. According to research by Crowther and Aras (2008), some basic principles are:
In line with the United Nations’ definition of sustainability—using resources in such a way that future generations may continue to benefit from those same resources.
Recognition and acceptance of the fact that organisations have an impact on its external environment, and a responsibility for the effects of its actions.
Accountability also implies a commitment to quantification and reporting out of impact. Crowther and Aras further define characteristics of good reporting; it must be:
- Understandable to all parties concerned
- Reliable (accurate, representative, and free from bias)
- Comparable (consistent and replicable)
All relevant information—ie. relating to the effects of the corporation’s actions—should be readily apparent and not misleading.
Recent Developments CSR regulations in the EU
In 2014, the European Parliament adopted provisions that required companies (with over 500 employees) to disclose information on their CSR operations and activities, making impact reporting an obligation alongside traditional financial reporting.
At the time, the three key EU regulations on sustainability disclosure were the EU Taxonomy, the Sustainable Finance Disclosure Regulation (SFDR) and the Non-Financial Reporting Directive (NFRD).
These regulations defined scope of reporting and required activities, with some overlap between the three regulations.
In 2021, the European Commission (EC) adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD) that amended reporting requirements of the NFRD and effectively updated the directives of the aforementioned regulations.
Key things to know about the CSRD is that it:
- Extends the scope of the NFRD
- Requires an audit of reported information
- Introduces more detailed reporting requirements (refers to mandatory EU sustainability reporting standards), and
- Requires companies to make reported information accessible to a shared access point.
In light of sobering climate change statistics, organisations are recognising various social and environmental issues as material and thereby increasing efforts to address and prioritise responses to these concerns.
The recognition and perhaps increased commitment to the triple bottom line is evident in across various organisations.
The heightened scrutiny of issues that fall within the purview of CSR has led to increasing market demand for CSR experts.
Some of the key material issues focus on climate change, biodiversity, and human rights.
- Materiality: “An organisation's significant economic, environmental and social impact… issues that substantially influence the assessments and decisions of stakeholders.” Definition from NYU Stern
- ARO approach: ARO stands for avoid, reduce, and offset– the three steps, in order of priority, that define sustainability efforts, especially with regards to emissions and resource conservation.
- Sustainable Development Goals: A set of 17 interlinked global goals that were designed by the United Nations as a blueprint for a better and more sustainable future.
- Triple P’s (People, Planet and Profit): Also commonly called the ‘Triple Bottom Line,’ this business framework expands business success metrics beyond immediate profit to include a focus on environmental and social impacts as well.
- Ethical Consumerism: A form of activism wherein consumers choose or reject products based on the practices and values of the company producing the product.
- CSR Verification: According to the CSR Implementation Guide, verification is “a form of measurement that can take place in any number of ways: internal audits, industry (peer) and stakeholder reviews, and professional third-party audits”. Going through the verification process is a best practice for CSR activities because verification strengthens transparency and accountability around CSR.
- Stakeholder theory: The basis for the stakeholder theory is similar to the basis for CSR—the idea that companies should create widespread value, not just for shareholders. The stakeholder theory highlights the varied relationships between all groups and individuals impacted by the corporation in question, and holds that these relationships should create positive value. Examples of potential company stakeholders might include: employees, customers/clients, suppliers, the local community, and public authorities.
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